Withdraw Excess Roth Contributions at a Loss

[nvc214]

I realized that in 2019, I contributed too much to my Roth IRA.  The value of the IRA has declined since the contribution, so when I withdrew in 2020, I took out the excess contribution minus the associated losses.

I entered into TurboTax that I am planning to fully withdraw the entirety of the excess contribution prior to the tax deadline so they do not add the penalty.  However, given that I won't receive a 1099-R until 2021 (due to withdrawing in 2020), I'm unsure of what to enter in the "income" section? 

Should I be entering a "dummy" 1099-R so I do not have to file an amended return later on? If so, given that I am showing a loss, what do I enter in box 1 (excess contribution minus the losses, or just the excess contribution?) and box 2a (can I enter a negative number for losses or leave it at $0)? What codes should I use for box 7?

[DavidS127 · Accepted solution]

No, don't enter anything in your 2019 taxes if you withdrew the excess Roth before the due date of your 2019 tax return.  And, because you have a loss for the period of time before the excess contribution was withdrawn, you won't need to amend your 2019 tax return when you get the 2020 1099-R because there are no earnings to report.

That 2020 1099-R will report the excess contribution minus the loss in box 1, a zero in box 2a and a code JP in box 7.    The JP code tells that IRS that it was the withdrawal of an excess contribution from a Roth by the due date, and the zero in box 2a tells the IRS there is no income to report.

[dancronin1]

Shouldn't there be some tax deduction for the loss as no deduction was taken for the excess contribution that was "lost"?

[DianeC958]

No, there is not a tax deduction due to a loss in a retirement account for an excess contribution.

@dancronin1

[Tk365WA1]

This is confusion. Doesn't "excess contribution" imply that it does not belong to a retirement account, and that is why any earning from this asset is subjected to tax as ordinary income. Then, on the same token, why is there no tax deduction allowed for a loss? Can someone explain further. Thanks.

[taxuser44]

TT is telling me that I am being assessed a penalty on the loss.  I said I had excess contributions of $6000 for 2019 and contribution withdrawn is $5638 when the losses are considered.  I am being assessed $22 on the $362 difference.  How do I enter it in the TT to not be taxed on it?  Thanks.

[Critter]

Ok ... you must indicate you removed the entire $6000 even though you will not have that much distributed ... this is the way the loss is taken into consideration.  

[y2kroxy]

I have the same issue.  I have an excess contribution carryover into 2019 and when I withdrew the amount, there is a loss for the taxable amount (earnings).  Looks like there are 2 answers here.  Are both acceptable?

Solution 1

  The above Best Response says you don't have to report withdrawals at all because your Roth Gross Distribution of your withdrawal is not taxed and there is no taxable amount (earnings) because there is a loss on Box 2a.

Under Deductions & Credits Tab - Retirement and Investments - Update and go to

Enter Excess Contribution for Prior Years as zero for you and your spouse if applicable (you withdrew the excess contributions before the tax filing date and now have no carryover from prior years).

OR

Solution 2

If you have already received the withdrawal,

1) Create a substitute 2020 1099R with Codes P and J

2) Enter full amount of withdrawal  in Box 1 and zero in Box 2a.

Under Deductions & Credits Tab - Retirement and Investments - Update and go to

Enter Excess Contribution for Prior Years as zero for you and your spouse if applicable.

[madmanc20]

Doing elderly mother's taxes. Slightly different case

- Contributed $7k ROTH IRA for 2019 taxes before 4/15/2020 deadline and filed before deadline

- Mistakenly processed an excess withdraw for this contribution. Earnings was a loss due to bearish market  (Was doing a 2020 RMD rewind at the same time and got the years crossed)

- Now have a 2020 1099-R for this withdraw code 8J showing excess withdraw

What can I do?

- Calling Roth IRA admin to see if can change this withdraw to normal Roth IRA withdraw.

- Anything can be done by Turbotax?

[poshskier]

Will the Taxpayer receive a 1099 with the capital loss of the decreased value of the account or is that just a loss that is not accounted for?

[rgordon93]

@DavidS127  I am hoping you can help me. In 2018 I made a contribution of $500 to my Roth IRA. I was phased out that year and should have not made any contributions. I just recently caught this. I filled withdrawal paperwork with Charles Schwab to remove the $500. The amount removed was $395 as the investments lost value. Is this correct or do I need to remove an additional $105? How do I handle my 2018,19,20, and 21 taxes returns? I have not submitted my 2021 tax return yet. Thanks. 

[DanaB27]

Yes, you will need to remove an additional $105 since you removed the excess after the due date of the 2018 return you will have to make a regular distribution of $500 (without earnings and losses).

If it was removed in 2022 you will get a 2022 Form 1099-R and you will enter it on your 2022 return.

You will have to pay the 6% penalty on the excess contribution for 2018, 2019, 2020, and 2021. Please see How to amend (change or correct) a return you've already filed.

On the 2019, 2020, and 2021 returns follow these steps to get the penalty calculated on Form 5329:

1. Click on "Search" on the top right and type “IRA contributions”
2. Click on “Jump to IRA contributions"
3. Select “Roth IRA”
4. Continue until the "Do you have any Excess Roth Contributions" answer "Yes"
5. On the "Enter Excess Contributions" screen enter the total excess contribution from 2018

On the 2018 return, you will enter your Roth contribution and TurboTax will warn you about the excess and then calculate the penalty for you on Form 5329.

@rgordon93

[photoartman]

I had a similar experience last year. I had an excess contribution of $300. When Schwab withdrew the excess contribution, I only had $217 returned. Do I enter $300 as withdrawn from the IRA or $217?

[DanaB27]

If you requested the withdrawal of the 2023 excess contribution plus earnings but received less because of a loss then you will enter the full excess amount ($300) as withdrawn on the penalty screen in the IRA contribution interview:

1. Click on "Search" on the top right and type “IRA contributions”
2. Click on “Jump to IRA contributions"
3. Select “Roth IRA”
4. Continue until the penalty screen and enter the $300 excess contribution amount as withdrawn.

Only the earnings are taxable for a return of excess contribution distribution. Therefore, since you had a loss, your distribution will not be taxable.

@photoartman    

[fanfare]

when you check the box that your year end value is zero, the IRS and TurboTax will be satisfied, even if you only distributed $217 as stated on your 1099-R.

@photoartman